•  Prove Coverage.   If the insured's claim is covered under the policy as issued, generally speaking the agent is not responsible.  Prove the clause or exclusion in the disputed policy is unenforceable, ambiguous, or not applicable, hence the insurer must pay the claim.

•  Reform the Policy.  If the policy does not accurately reflect the agreement of the parties, work with the insured to reform the policy.  Under certain circumstances, the agent may even acquire the standing to do this in the court proceeding.

•  The Agent Bound the Company.  Often an agent's mistake will be binding on the company.  Prove the necessary agency relationship, which can be nothing more than the underwriter permitted the agent to bind a certain coverage, or letting the agent lead the insured to conclude he was an agent -- known as "ostensible" agency in California.

•  Prove Bad Faith.  Unreasonable claims handling by the insurer leads to consequential damages, such as emotional distress in personal claims and attorneys fees in commercial cases.  Proving bad faith by the insurer insulates the broker from these damage claims since the broker is generally not liable for bad faith damages.

•  No Harm, No Foul.  If the Company is bound and generally provides the coverage in question, it is possible to prove that it would have issued the policy anyway, so the only harm to the insurance company is the extra premium it would have charged the insured. Of course the insured would have happily paid it!

•  Agent Did Nothing Wrong.  First and foremost, show that the agent met the standard of care.  For example, if the insured limited his request for insurance to the replacement of preexisting expiring policies and the agent complied, he or she did not have a duty to ascertain whether the insured had other exposures which should have been insured.  He is not responsible for an uncovered loss suffered by the insured.  Needless to say, this duty changes and becomes greater in situations where the agent undertakes to evaluate the needs of his client.  He must then attempt to get all pertinent information and suggest insurance for obvious exposures.   Sometimes these suggestions go unheeded because the insured wants to save $50 in premium.  After an uncovered loss occurs, he would have bought the coverage and denies rejecting it.  In these situations, it is best that the agent have a written rejection.  Some agents accomplish this by listing and billing the insured for all the policies suggested for the insured's exposures and the insured responds by crossing out those coverages for which he does not want to pay premium.  Other agents request that their clients sign letters acknowledging that certain coverages were explained, recommended and rejected but it is very difficult to get compliance unless accompanied by a bill which demands payment for all recommended coverages.

•  Insurance Was Not Available.  Many insureds expect everything in the world to be covered by their insurance.  Show that coverage is simply unavailable anywhere, that the risk is a "business risk" and not insurable, or even that it's illegal -- e.g., life insurance for a cocaine abuser.

•  Additional Insureds Not Covered.   There are many claims resulting from additional insured certificates or endorsements, often involving agents who issue such certificates.  These have numerous permutations and come in many forms.  Often the additional insured is simply not covered under either the certificate or the hold harmless agreement, thus resulting in a successful defense of the agent who issued the certificate.

•  The Insured Set The Limits.   The insured told the agent a million dollar limit was sufficient for his warehouse property coverage, despite the agent's recommendation for higher limits.  If the agent has a written rejection or refusal to pay for the additional coverage, it is so much easier to defend this type of claim.

•  The Insured Refused an Umbrella.   If the insured refuses additional liability coverage or limits, will not buy an umbrella policy, and the agent has a form of written rejection, a claim for an uncovered loss is much more defensible than one without a written rejection.

•  The Insured Didn't Read the Policy.    The law requires the insured to read the policy, unless the agent has led the insured to believe that a particular exposure is covered.  At the very least, most insureds will read the face sheet of the policy and know who is named as the insured, how much the premium is, and the name of the company but many insureds simply open the envelope and file it away.  This leaves the agent open to claims by the insured that the needed coverage was not properly obtained.  Many agents attempt to protect themselves by means of a cover letter essentially requesting the insured to read the policy and the exclusions and to call the agency if they have any questions or see any mistakes.  When policies are sent directly by the company to the insured, the agent should write a letter asking the client if the policy together with its exclusions met with the insured's expectations or if there are any questions or mistakes relating to the policy.

•  The Insured Misrepresented Themselves.   Sometimes, insureds are not entirely forthcoming, for example, about why their prior year's coverage needs to be replaced, the scope of their operations, their payroll, sales or number of employees.  All of these kinds of misrepresentations are defenses for the agent just as much as they are for the company which denied coverage or cancelled-rescinded the policy.  Never Ever "help" an insured misrepresent information to an insurance company.

•  The Insured Failed to Pay Premium.   Do not ever pay or advance premium for a client, no matter how long they have been your insured.  Failure to pay premium leads to policy cancellation but in many instances, the agent is stuck with paying all earned premium.  This can happen when the policy is obtained through a wholesale broker or when the agent fails to timely advise a company he represents that he cannot collect the premium.  Be extremely careful about accepting overdue payments for financed premium as this might lead an insured to claim that he believed his canceled policy was in force.  If any overdue payment is accepted, the insured should be reminded in writing that the policy has been canceled and even if funds are forwarded to the carrier, it is up to the insurer whether to reinstate the policy.

•  Statute of Limitations.    Many insureds do not sue in a timely fashion, usually two years from discovery of the error and when the insured suffers damages.  This can include having to hire an attorney, having the claim denied or being paid less than in full, or some other event.

•  "Drop Down" Defense.   There are claims in which the agent's mistake is obvious, and thus with the consent of the professional liability insurer a defense or coverage will be offered to the agent's client in order to prevent further losses or damage.  The agent or his errors and omissions carrier stand in the place of the carrier which would have provided the missing coverage.

• The Company Should Defend the Agent.  Most agency agreements contain hold harmless and indemnity agreements requiring the company to defend the agent in certain circumstances generally including that the agent not have contributed in any way to the problem.  While these agreements are usually one-sided in favor of the company, careful attention should be paid to such agreements and a written demand for defense of the agent by the insurance company made if at all possible.  This is especially important in those cases where the insured is overreaching and trying to get coverage which he rejected or where he understated the exposure.

•  Additional Defenses.    This is not an exclusive list.  There are numerous additional defenses in agents errors and omissions matters, and it is wise to confer with both your professional liability insurer and an attorney experienced in handling such cases.

•   National building maintenance company engaged firm to review and advise company on indemnity and insurance coverage issues.

•  Owner of resort hotel property denied liability coverage by umbrella carrier.  Advised insured respecting rights and remedies against insurer, and mediated conclusion of dispute with no payment by property owner.

•  Represented elevator maintenance company under indemnity agreement and additional insured certificate from property owner public agency, and successfully negotiated agreement exonerating client from any further exposure.

•  Elevator maintenance company, denied coverage by umbrella carrier, filed suit against insurer and resolved with all reservations of rights withdrawn.  Full $5.0 million limits of umbrella coverage provided to client.

Copyright © 2006. Clark Law Firm. All rights reserved.